You are employed by Wal-Mart Stores, a Fortune 500 firm. You are on the corporate staff as an assistant to the CFO. This is a position with high visibility and the opportunity for rapid advancement, providing you make the right decisions. Your boss has asked you to estimate the weighted average cost of capital for the company.
IBM 8% due in 5 years Assume $1,000 Par or face amount Assume exactly 5 years to maturity Cash Flows: 0 $0 1 $40 2 $40 3 $40 4 $40 5 $40 6 $40 7 $40 8 $40 9 $40 10 $1,040
1. Suppose Floyd Motor Company sold an issue of bonds on January 1, 2001. The bonds were sold for $1,000 per unit (i.e., they were issued at par), had a 10 percent coupon rate payable semi-annually, and matures in 15 years, i.e., on December 31, 2015. a) If you bought the bond on the issue date at the issue price and expecte
Following are 10 pairs of assertions: 1. A. Existence or occurrence of inventory B. Existence or occurrence of building. 2. A. Valuation or allocation of cash. B. Valuation or allocation of deferred income taxes 3. A. Existence or occurrence of AP B. Completeness of AP 4. A. Rights and obligations of accrued wages payable B. Rights and obligations of liability under warranties 5. A. Presentation and disclosure of repairs and maintenance expense B. Presentation and disclosure of telephone expense 6. A. Valuation or allocation of long-term investments B. Valuation or allocation of land 7. A. Existence or occurrence of AR B. Completeness of AR 8. A. Existence or occurrence of cash B. Valuation or allocation of cash 9. A. Valuation or allocation of bad debts expense B. Valuation or allocation of depreciation expense 10. A. Valuation or allocation of receivable due from affiliate B. Valuation or allocation of note payable to bank Required: a. For each pair of assertions, indicate whether a) or b) would typically have the higher inherent risk and state why.
(Inherent risk) Following are 10 pairs of assertions: 1. A. Existence or occurrence of inventory B. Existence or occurrence of building. 2. A. Valuation or allocation of cash. B. Valuation or allocation of deferred income taxes 3. A. Existence or occurrence of AP B. Completeness of AP 4. A. Rights and obligations
a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why? The following
1) As an investment analyst, you are typing to determine the probability of different returns on Omega Corporation's common stock. As a first step you will determine Omega's required rate of return. The 10-year Treasury bond rate is 4%. The market risk premium is 5% and Omega's beta is 1.4. You have already completed calculation
Chapter 6 43.) Present and Future Values. The present value of the following cash flow stream is $6,550 when discounted at 10 percent annually. What is the value of the missing cash flow? Year Cash Flow 1 $1,700 2 ? 3 $2,100 4 $2,800 Chapter 7 9.) Calculating Real Rates of Return. If treasury bill
1. A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following statements is CORRECT: a. The bond's current yield is less than 8%. b. If the yield to maturity remains at 8%, then the bond's price will decline over the next year. c. The bond's coupon rate is less t
.Drywall Systems, Inc., is presently in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the company that different maturities will carry different coupon rates and sell at different prices. Drywall Systems must choose among several alternatives. In each case, the bo
1. Office supplies have a balance of $2,400. An inventory at 12/31 shows $1,700 of supplies on hand. 2. There are two insurance accounts in the trial balance, prepaid insurance-$9,200 and Insurance Expense $2,800. Unexpired insurance at the statement date is $3,000. 3. All rent receipts ($25,000) were credited to rent income
See the attached file. SQ 9-9. Define and explain the use of the following: (a) long hedge; (b) short hedge; and (c) cross hedge. SQ 9-10. Which type of hedge named above works best in an environment of rising interest rates? Of falling interest rates? Illustrate both cases using a payoff diagram. SQ 9-11. What is the ba
Suppose a 10-year bond is issued with an annual coupon rate of 8 percent when the market rate of interest is also 8 percent. If the market rate rises to 9 percent, what happens to the price of this bond? What happens to the bond's price if the market rate falls to 6 percent? Explain why. An investor is interested in purchasin
Question 1 Phoenix Company common stock is currently selling for $20 per share. Security analysts have assigned the following probability distribution to the price of (and rate of return on) Phoenix stock one year from now: Price Rate of Return Probability $16 -20% .25 $20
You are given two bonds (Bond A & Bond B) which have different payment schedule. Based on the following information, you wish to figure out which bond has a greater interest rate risk. (You need to calculate duration and volatility of bonds) o Bond A: 2 year discounted bond with face value of $1000. o Bond B: 2 year coupon bond (annual coupon rate = 5%) with face value of $1,000 o Assume 6% of appropriate discount rate (Annual yield)
You are given two bonds (Bond A & Bond B) which have different payment schedule. Based on the following information, you wish to figure out which bond has a greater interest rate risk. (You need to calculate duration and volatility of bonds) o Bond A: 2 year discounted bond with face value of $1000. o Bond B: 2 year coupo
1. When the demand for bonds _________ or the supply of bonds _________, interest rate rise. A. decreases; increases B. decreases; decreases C. increases; decreases D. increases; increases 2. When the price of a bond is _________ the equilibrium price, there is an excess demand for bonds and the price wil
Please help with the following problem. Benson Incorporated has bonds with the following features: Par value of $1,000, maturity of 12 years, and a coupon rate of 8%. The yield to maturity is 10%. Please determine if the bond sells for a premium, par, or discount and explain your answer. Calculate the value of the bond if
Texas Foods has a 6 percent bond issue outstanding that pays $30 in interest every March and September. The bonds are investment grade and sell at par. The bonds are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus 0.50 pe
A 6-year, $1,000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1. Assume today is October 1. What will the difference, if any, be between this bond's clean and dirty prices today? Question 1 options: 1) five month's interest 2) two month's interest 3) no difference 4) one
What are call provisions and sinking fun provisions? Do these provisions make funds more or less risky?
A. What are bond's key features? b. What are call provisions and sinking fun provisions? Do these provisions make funds more or less risky? c. How is the value of any asset whose value is based on expected future cash flows determined? g. What is interest rate (or price) risk? Which has more interest rate risk, an annual paym
Celine Dion Company issued $600,000 of 10% 20-year bonds on January 1, 2008, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight line method of amortization for bond premium or discount. Prepare the journal entries to record the following. (a) The issuance of the bonds. (b) The
1. Assume that the Treasury sold a $100,000, 30 year bond exactly twenty five years ago. That bond carried a coupon rate of 10.75%. Also assume that today a five year Treasury security yields 3.0%. How much would that 25 year old bond sell for today? (Note: for simplicity purposes only, assume annual interest payments on the bon
Please view attached file for clarity of the table. Question: What is the project's cost of equity? What is the appropriate discount factor to use for evaluating the refrigerator project? The following assumptions are used to determine the cost of capital. Historically, the company tried to maintain a debt to equity ratio
Bond X is a premium bond making annual payments. The bond pays an 8 percent coupon, has a YTM of 6 percent, and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a 6 percent coupon, has a YTM of 8 percent, and also has 13 years to maturity. If interest rates remain unchanged, what do
Staind, Inc. has 7.5 percent coupons and bonds on the market that have 10 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 8.75 percent, what is the current bond price? Ackerman Co. has 9 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments. If
See attached file for clarity of the tables included. Please provide step-by-step solutions. Problem One: The following transactions occurred during the year. Indicate how each transaction affected the number of shares outstanding, the balances in Common Stock and Additional-Paid-in Capital. Assume a beginning balance of
Fin 534 Chapter 8 Problem 9 Explain why the yield of a bond that trades at a discount exceeds the bond's coupon rate? Chapter 8 Problem 24 Assume there are four default-free bonds with the following prices and future cash flows:
Brigit Hall has decided to establish a university endowment fund at T.T. Penguin's former university, using an $8 million donation from Penguin. The fund will be used to construct a new building in five years, which is expected to cost $10 million at that time. In the interim, Penguin would like to generate end-of-year scholarsh
Suppose that, due to an unexpected decline in federal income tax collections, the Treasury is compelled to borrow an extra $40 billion to cover planned expenditures in the current government budget. What would be some of the possible effects of this additional borrowing on the financial markets and the economy?
See the attachment. Problem One: (a). The yield to maturity on ACL bonds maturing in 2008 is 8.75 percent. The yield to maturity on a similar maturity U.S. Government Treasury bond in 7.06 percent and the yield on Treasury bills is 6.51 percent. What is the default risk premium on the ACL bond? (b) AKA is considering expan
1. Determine the current market prices of the following $1,000 bonds if the comparable rate is 10% and answer the following questions. XY 5.25%, (interest paid annually) for 20 years. AB 14 %, (interest paid annually) for 20 years. a. Which bond has a current yield that exceeds the yield to maturity? b. Which bond m